The acquisition of tw telecom by Level 3 Communications, Inc. is expected to create a bigger, more agile and more competitive unit that will be better poised to take on the market challenges and serve global communications needs. According to a statement, both US-based Service Providers have entered into a definitive agreement, whereby Level 3 will acquire tw telecom in a stock-and-cash transaction valued at $40.86 per share based on market close as of June 13, 2014. tw telecom stockholders will receive $10 cash and 0.7 shares of Level 3 common stock for each share of tw telecom common stock that is owned at closing.
The acquisition will confer great benefits to customers of both companies with Level 3's global customers having access to tw telecom's deep metropolitan footprint and buildings connected to the network, enabling a higher quality and more reliable on-net experience for customers doing business in North America while tw telecom's customers will benefit from Level 3's extensive local-to-global footprint, with owned network and data centers in more than 60 countries and significant global subsea networks. According to both companies, they have developed a strategy and commitment to delivering an excellent customer experience, which will be a key pillar of the combined company. Apart from enhancing their value to their subscribers, the companies expect to benefit from their close geographic proximity, previous integration experience of both companies and tw telecom's fully integrated operating platform.
According to the reported valuation, the company estimates that the net present value of the potential synergies will be approximately $2 billion. The company expects to realize approximately 70 percent of expected Adjusted EBITDA savings within 18 months after closing the transaction. The combined company had pro forma revenue of $7.9 billion and Adjusted EBITDA of $2.2 billion before synergies and $2.4 billion including expected run-rate expense synergies for the twelve months ending March 31, 2014.
"We believe this is a financially compelling and very strategic acquisition for Level 3 that will enhance our ability to continue to gain market share. The transaction further solidifies Level 3's position as a premier global communications provider to the enterprise, government and carrier market, combining tw telecom's extensive local operations and assets in North America with Level 3's global assets and capabilities.tw telecom's business model is directly aligned with Level 3's initiatives for growth, which include building managed solutions to meet customer needs through an advanced IP/optical network. The benefits created by this transaction deliver substantial value to both companies' stockholders, as it accelerates our objective of driving profitable growth and strengthening Free Cash Flow per share growth over the long term."
- Jeff Storey, President and CEO, Level 3 Communications
"The transaction with Level 3 provides the combined company with an enhanced competitive position, our customers with a broader product offering, and better opportunities for our employees as part of a larger company in an industry where scale is important to compete effectively against larger competitors. The transaction provides our stockholders with meaningful immediate cash value for their investment in tw telecom, while enabling them to participate in the substantial upside potential of the combined company. We look forward to working together with Level 3 to ensure a smooth transition."
- Larissa Herda, Chairman and CEO, tw Telecom
"The transaction is attractive from a financial perspective, as it is deleveraging and is accretive to Free Cash Flow per share after the first year. In addition, the combination is expected to provide $240 million of annualized synergies, with $200 million from Adjusted EBITDA savings and $40 millionfrom capital expense savings."
- Sunit Patel, Executive Vice President and Chief Financial Officer, Level 3
